Gas Prices Will Remain High Industry Economist Tells Chamber

By Eric Kalis
The chief economist for the American Petroleum Institute told a Miami audience last week that gasoline prices will remain high but insisted oil companies aren’t to blame.

Stung by accusations in Washington that the oil industry unlawfully raised fuel prices after last hurricane season, John Felmy, director of the institute’s statistics department, spoke to the Greater Miami Chamber of Commerce’s board of governors and trustees to counter claims of cost manipulation and forecast this summer’s energy market.

Mr. Felmy told the 250 lunch guests at the Radisson Miami that the average price of gasoline, which has risen about 30 cents since March, will remain 25 cents higher than last summer. A growing global demand for energy, not underhanded tactics by suppliers, is driving the market, he said, citing a May report by the Federal Trade Commission that he said cleared oil companies of wrongdoing after Hurricanes Katrina and Rita.

The Trade Commission did find 15 instances after Hurricane Katrina that fit the congressional definition of "price gouging." But even in most of those cases, the commission says the high prices could be explained by local or regional market trends.

Responding to the Trade Commission finding, the non-profit public interest organization Public Citizen charged that the commission has become increasingly political, losing its traditional independence and favoring big oil, and the agency is too quick to point blame at small retailers rather than large refiners. This, Public Citizen said, comes despite a May 2004 U.S. Government Accountability Office report that found that mergers in the oil industry have led to higher prices.

Mr. Felmy said consumers will bear the bulk of gasoline costs until more people start using alternative sources of fuel.

"The demand for gas is down, but the situation is hard to change," he said. "People would have to buy new cars to fuel the economy, which is not easy because of high prices."

Mr. Felmy is touring several states to inform the business communities about measures oil companies are taking to ensure gasoline is in ample supply in hurricane-affected areas.

"We have held nationwide conferences on hurricanes to go over the lessons learned from last year," Mr. Felmy said. "I met with members of the departments of energy and homeland security to see what we need to do better during storms to get fuel for those in need. Our institute just released a list of recommended practices for the upcoming season."

A lack of communication between national and local government entities, he said, was a major reason some areas took longer to regain power, citing instances in which the institute deployed generators to restart oil pipelines in the Gulf region only to find out local authorities had seized them to use for hospitals.

"The biggest challenge last year came from conflicts between local governments and national companies," he said. "Losing those generators resulted in a major waste of time and effort. There needs to be an understanding of who is in charge."

If more people seek alternative forms of energy, Mr. Felmy said, gasoline prices will slowly decrease. An important element in slowing down the energy market, Mr. Felmy said, is the use of ethanol to contain the burning of petroleum fuel.

"Ethanol can play an important role in energy conservation," he said. "It is mandated that we must use 4 billion gallons of ethanol in our total supply. Ultimately, energy efficiency starts with the judgment of the individual."